With traditional leasing models it is difficult for the lessor to provide a future, end-of-useful-life residual value that is acceptable to the lessee.
The lessee will obtain the greatest financial advantage through the establishment of an operating lease, as defined by International Financial Reporting Standards (specifically IAS 17) and with terms that enable the closest possible matching of cash flows to the depreciation of the asset over its economic life. Financial evaluation is measured by achieving the highest possible Net Present Value (NPV) of cash flows over the life of the transaction at the rate of alternative cost of funds.
IAS 17 evaluates transfer of asset risk between the parties and specifically requires reference to a Present Value (PV) test as evidence that the lessor carries a substantial asset ownership risk. Current leases consist of a single term and pose numerous problems for lessees, for example:                Leases shorter than asset useful life may distort the charge against profit through a mismatching of amortisation charge with the income producing capability of the asset;        Lease versus buy comparisons using measures generally favour the buy case when leases are for a term shorter than the useful life and generally fail the PV test when applying parameters that would provide a positive NPV case for leasing;        Leases set for the full term of the useful life may limit flexibility for lessees who face cyclical demand for the use of a fleet of a particular asset group; and        Loan covenants may restrict the establishment of leases that cover the full useful life of a large fleet of assets.        